Spyglass Hopes for More Good 'Sense' in Future Projects

Sometimes in Hollywood, a guy can get lucky. The partners in Spyglass Entertainment, executive producers of "The Sixth Sense," the supernatural thriller that has grossed $660 million worldwide, know how it feels.

Gary Barber and Roger Birnbaum and their 18-month-old production company have made calculated bets on a number of films. "Sixth Sense" has paid off in spades.

Though on their other films--box-office flops "Instinct" and "Keeping the Faith" among them--Spyglass will be lucky just to break even, the company's profit on "Sixth Sense" could be well in excess of $100 million. The film is the biggest rental title ever and has sold a record 2.5 million DVD units, and it's still in a handful of theaters after nearly a year in release.

How this fledgling company--whose next film, "Shanghai Noon," is due out Friday--leverages its success is critical.

Spyglass is among Hollywood's new breed of self-financing companies that studios enlist to help minimize their risk in a capital-intensive business.

When studios are afraid they've got too much money riding on films that don't look too promising or when they want to cut costs on expensive films, they'll sell off rights or, as in this case, whole films. The studio remains the distributor and earns a healthy chunk of the revenue.

For "Sixth Sense," Walt Disney Co. will see a profit of $75 million to $100 million. Star Bruce Willis takes home roughly $50 million. But if the film had tanked, Disney would have looked smart for cutting its losses.

It's a risky game for Spyglass, which plans to continue financing films through a network of relationships with Disney and such foreign distributors as France's Canal Plus and Germany's KirchGroup.

Barber and Birnbaum co-founded the firm in 1998 with a $200-million credit facility from Chase Manhattan Bank and equity investors such as Disney, Svensk Film Industri of Scandinavia and Lusomundo of Portugal. Disney has an exclusive distribution deal in the U.S. and key foreign territories for Spyglass films.

"We've built a solid financial base with 'Sixth Sense' and can now explore where best to invest our dollars in other areas, not just movie production," said Barber, formerly chief operating officer of Morgan Creek Productions, who has financial expertise and extensive knowledge of the international marketplace.

Barber said he and Birnbaum, a seasoned studio executive who headed production at 20th Century Fox and as a producer co-founded and ran Caravan Pictures, have "decided to take a portion of our money and make multiple strategic investments in small start-up 'dot-com' companies." They have yet to make any formal announcements.

Barber and Birnbaum, who as equal partners in Spyglass own more than 80% of the firm, say they're also looking to buy select movie theaters, both here and abroad, even though Barber readily acknowledges "that's a tough business." But he believes that it may be the right moment to shop, given that some theater circuits "are either going bankrupt or getting out of the business."

Birnbaum stressed that, while movies will "always be our core business," Spyglass is developing some TV shows and has sold a couple of ideas to larger production firms better able to finance them. "We have a couple of pilot scripts being written for us. And, if we get them on the air and have some success, then we'll hire someone."

On the movie side, Spyglass hasn't had nearly the kind of success with its other releases that it's had with "Sixth Sense."

In addition to the disappointment of "Instinct" and "Keeping the Faith," the firm's investments in certain foreign rights to Disney movies "Mission to Mars" (around $30 million) and "The Insider" (approximately $20 million) also proved ill-fated when those movies flamed out. Spyglass, however, will probably come out OK on those two investments, because it covers much of its downside by pre-selling rights to overseas distributors.

Barber said that the "combined impact" of all four films "will not, in the long run, result in a loss for this company," though some sources are skeptical of that.

John Miller, managing director of Chase Manhattan Bank, said that Spyglass and the bank are pretty well protected because of the company's pre-sell construct.

Miller, whose relationship with Barber goes back many years, said the Spyglass business model of having backing from a major studio such as Disney and strategic partnerships around the world "is the wave of the future . . . we thought it was great for us and from a banking perspective was a very easy deal to make."

There's good advance buzz and strong reviews on Spyglass' next movie release, "Shanghai Noon," a $55-million East-meets-West adventure-comedy starring Jackie Chan. But with audiences drawn to the anticipated hit "Mission: Impossible 2," which opens Wednesday, and such strong holdovers as "Dinosaur" and "Gladiator" there will be some stiff competition over the heavy moviegoing Memorial Day holiday weekend.

"Shanghai," based on Chan's original idea, is the first film Spyglass has produced that was developed in-house.

"We thought Jackie Chan turning all the icons of the West upside down in an adventure comedy was a really good idea," said Birnbaum, who had produced Chan's action-comedy box-office hit "Rush Hour."

Spyglass, whose goal is to finance three to five movies a year, is prepping a remake of "The Count of Monte Cristo," with plans to shoot in Ireland in July.

Spyglass hopes to make "a fun, big Hollywood movie that will work for generations that haven't seen it before," Birnbaum said.

Spyglass just plain lucked into "Sixth Sense," then arguably had the foresight to take the gamble on a not-so-obvious hit.

Disney had bought M. Night Shyamalan's spec script in a bidding war, paying him $2.5 million for the material and $500,000 more to direct what was originally intended as a low-cost, $15-million movie with no big stars. When Willis, who makes $20 million a picture, signed on, the budget mushroomed to more than $40 million. At that point, Joe Roth, then head of the studio, invited Spyglass to finance what had shaped up to be a risky picture.

Willis had just bombed out in Universal's thriller "Mercury Rising," in which he also had a young co-star. And Shyamalan was an untested director who had made two small films that did no business.

"We read the script and loved it," recalled Birnbaum. "We thought from a business point of view Bruce is very big overseas so this will be a nice picture for our library. We factored in the fact that it was not a typical Bruce Willis action picture."

The Spyglass partners also have Roth to thank for putting them in business together. Both at one time had worked for Roth. Barber was at Morgan Creek, a company Roth co-founded in 1987 with James Robinson. Birnbaum worked under Roth at Fox and later founded Caravan Pictures with him.

Roth recently hired Spyglass to help set up his new production company with similar international distribution deals in overseas territories.

Roth, who left Disney in January to form his own venture, said a hit of this magnitude "completely changes the whole nature of a company."

"All of a sudden you have a cash-rich business and can take a lot of risks you might ordinarily not have taken," he said.

For the Record Los Angeles Times Friday May 26, 2000 Home Edition Business Part C Page 2 Financial Desk 2 inches; 42 words Type of Material: Correction "Sixth Sense" producer--In an article published in Tuesday's Business section, Roger Birnbaum and Gary Barber were erroneously mentioned as executive producers of "The Sixth Sense." The Spyglass Entertainment partners put together the film's financing. Sam Mercer was the executive producer.
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